What VA Buyers Need to Know About Mortgage Credit Scores
More and more veterans and service members are using credit-monitoring tools and apps to keep close tabs on their credit profiles. That’s a great step to take before starting the homebuying journey. Monitoring your credit reports can help identify problems that could keep you from landing a VA loan.
But it’s important to understand that the credit scores these tools and apps provide aren’t the same scores a mortgage lender sees when they pull your credit. Needless to say, it can come as a shock when you think you have a 640 credit score, only to be told by a mortgage lender that it’s actually 615.
In some cases, the gap may not have much of an impact. But in others, this discrepancy can mean the difference between getting prequalified for a VA loan and having to put your homebuying dreams on hold.
Generic v. Industry-Specific Credit Scores
Consumers don’t have one credit score, in part because you don’t have just one credit profile. Some of your creditors might report your usage and payment history to all three of the nation’s major credit bureaus -- Equifax, Experian and TransUnion -- while others might report to only one or two of them. Your credit profile might look different to each of the three big credit bureaus.
This key distinction between generic and industry-specific scoring models helps explain why a credit monitoring service might show consumers totally different scores than a mortgage lender.
Mortgage Credit Scores
For example, the three credit bureaus have their own generic scoring model, known as the VantageScore. Consumers who use Credit Karma see VantageScore credit scores from Equifax and TransUnion.
But in the world of mortgage lending, FICO credit scores still reign supreme. When lenders pull your credit, they’re usually looking at FICO scores specifically formulated for mortgage lending. These are known as mortgage credit scores.
The three credit bureaus offer different FICO formulas for mortgages, but the most common versions for lenders are:
•Equifax Beacon 5.0 (FICO Score 5)
•Experian/Fair Isaac Risk Model V2SM (FICO Score 2)
•TransUnion FICO Risk Score, Classic 04 (FICO Score 4)
Usually, lenders will get one mortgage credit score from each of the three reporting agencies and use the median (middle) score as your credit score for qualification purposes. Some mortgage lenders may have their own custom scoring models that factor the FICO mortgage scores into their overall formula.
In either case, the mortgage credit scores are based on a different formula than the generic or educational scores consumers get from credit monitoring services. It’s common to see a difference between the two types, which can be startling and sometimes frustrating for prospective VA buyers.
Generally, if your generic credit profile is in good shape, your mortgage credit scores will likely fall in line. Credit score benchmarks can vary, but lenders are typically looking for a 620 FICO for VA loans. If your generic scores are right at or below that cutoff, you might need to boost your credit profile before heading into the homebuying process. The only way to see your mortgage credit scores is to have a mortgage lender pull them. Talk with your loan officer for more information.
